Validea's Guru Investor Blog

By John Reese — If there’s one thing that’s hard to persuade investors to be, it’s patient. The urge to chase the hot idea or the manager with the dazzling recent track record is incredibly powerful. The resolve to resist crowd mentality can falter when it seems as if everyone else is winning and you’ve been left behind. Imagine hiring a manager in 1997 and for the three year period to 2000, he clocks a gain of 65 per cent. That sounds pretty good, but remember: It was the roaring 1990s, and the technology-fuelled boom was all anyone could talk […]

A study conducted by Morningstar, summarized in a recent article by the firm’s Alex Bryan, CFA, attempts to determine whether investors can duplicate strategic-beta fund performance with a combination of market cap-weighted indexes. The study compares the performance of a group of strategic beta funds to a “replicating portfolio of six style benchmarks for its relevant universe.” The purpose of the study, writes Bryan, is not necessarily to suggest that investors should replace strategic beta funds, but rather to offer insight as to whether they “provide exposure that’s distinctive from a combination of various cap-weighted indexes.” According to the article, […]

A recent article in ETF Trends offers insight on how synchronized economic growth “across the world has been relatively rare in the past half-century, and suggests to us a global economy that is hitting on all cylinders.” This provides a positive outlook, the article argues, “given our view that market sentiment is driven in part by the market’s collective probability of future recessions.” It suggests, however, that while corporate earnings are currently strong, the tendency of equity investors to equate earnings growth with economic growth may not always be well-founded. That said, the two seem to be tracking well at […]

By Jack M. Forehand — With so many great investing podcasts out there, it can be difficult to identify the best ones. Through our new Podcasts of the Week segment, I will try to help filter out the most interesting episodes and identify the podcasts I learned the most from each week. In addition, we will also take a look at a great podcast from the past via our From the Archives section. Best Episodes This Week David Tisch – Invest Like the Best – 9/19/2017 As an investment advisor, I get lots of exposure to public companies and methods […]

In a follow-up to an article it published a few days earlier, Bloomberg recently reported that hedge fund manager Steven Cohen “is preparing to raise as much as $10 billion from outside investors in 2018 for a new fund.” The move, the article says, would represent an “extraordinary turnaround” for Cohen, particularly given that his former firm, SAC, got bad press four years ago on its guilty plea to insider trading for which it paid a “record $1.8 billion penalty.” The article suggests that Cohen’s efforts could be an attempt to save face with investors, but argues that if he […]

The failure of central-bank models to forecast the slowdown in global inflation “leaves investors in the dark about the most important economic measure today and why it’s so low,” according to a recent article in The Wall Street Journal. Contradictory messages from the bond, equity and commodities markets is “adding to the confusion from central banks struggling with the breakdown of their inflation models,” the article says. The yield curve has been flattening such that 10-year bond yields are a paltry .77 percentage points higher than two-year bonds. While this is often a red flag, the low-growth environment, the article […]

The mission of the Hussman Strategic Growth Fund is to “outperform the broad stock market over complete market cycles…but seeks to limit its downside risk using derivatives, such as options on broad market indexes,” according to a recent article in The Wall Street Journal. John Hussman, manager of the fund, was successful in insulating investors to some degree earlier in the 2000s, the article says, “but it hasn’t helped through the long bull market.” Still, Hussman is standing his ground, notwithstanding recent lackluster performance and a corresponding investor exodus. Over the past fifteen years, says WSJ, the fund has declined […]

By Jack Forehand — When we started following guru-based models, the term factor investing didn’t exist. We just wanted to find a way to outperform the market, and we realized that only a very small group of investors had successfully done that – and we certainly weren’t in that group. So we decided to follow investors who had long-term records of beating the market and whose strategies could be quantified. We read their books and research papers to try to find out how they did it. We researched strategies by legendary investors like Warren Buffett, Ben Graham, and Peter Lynch, […]

Billionaire Steve Cohen, the former head of the firm SAC Capital Advisors—which pleaded guilty to securities fraud in 2013 and agreed to pay a record $1.8 billion fine—is considering starting a new hedge fund, according to a recent Bloomberg article. While Cohen wasn’t charged with wrongdoing in the case, he was barred from managing outside capital until January 1, 2018 and was required to convert his shop to a family office. According to the article, his “returns are just beginning to rebound after 18 months of barely making money at his family office, Point72 Asset Management. He’s now up about […]

By John P. Reese — If it ain’t broke, don’t fix it can be a useful mantra in many walks of life, but investors should be wary when applying this idea to asset allocations. Movements in the market can shift allocations and result in concentrations that might not necessarily fit your risk profile and/or investment goals. Suppose, for example, you create a portfolio comprised of 60% stocks and 40% bonds. If stocks see a period of large returns and the allocation shifts to, say, a 70% stock allocation, you might consider leaving things alone in the hopes that the trend will […]

Warren Buffett is the winner in the bet he made with finance professionals back in 2007 that, over the ten years between January 1, 2008 and December 31, 2017, the S&P 500 would outperform a portfolio of funds of hedge funds (when performance is measured on a basis net of fees, costs, and all expenses). This according to an article in this week’s AEI. Ted Seides, co-manager of Protégé Partners, was the only fund manager to accept Buffett’s challenge. The following results are outlined in Berkshire’s 2016 letter to shareholders: “Buffett’s index investment bet is so far ahead,” the article states, […]

AMP Capital’s Nader Naeimi, who heads one of the firm’s dynamic investment funds, has about 30% of his holdings in cash, according to a Bloomberg article from earlier this month, and sees North Korea situation as “one of the factors that could eventually bring down the long bull run in equities.” In addition to his cash holdings, Naeimi has “an allocation to gold and is short emerging-market currencies versus the dollar. His fund has beaten 77 percent of peers over the past year,” according to data compiled by Bloomberg. According to the article, Naeimi said, “Markets need a correction,” adding, “There […]

Although the shift to ETFs over the past ten years has been dramatic—since the start of 2008, the industry has attracted nearly $2.8 trillion in investment dollars (according to the Investment Company Institute)—Vanguard chief executive Bill McNabb told The Financial Times that he doesn’t see this as a “systemic” trajectory indicative of a market bubble. In the interview, McNabb argues that index tracking funds represent less than 15 percent of the equity market capitalization around the world, and less that 5 percent of daily trading volumes in global financial markets. [Vanguard, the article says, has “set industry records for new […]

The post-financial crisis strategy of investing heavily in hedge funds that “offered protection should the markets plunge” has fallen out of favor, according to a recent article in The Wall Street Journal. Data from CBOE Eurekahedge shows that investors who gravitated toward “tail-risk” funds designed to perform during sudden market declines—events referred to as “black swans”– saw performance of these funds peak in September 2011 but “would have by now lost 55% of their money.” The extended bull market of the past eight years has hit tail-risk investors hard, says WSJ. These funds have lost money four of the five […]

Arguing that the shift to passive investing is “really just a reflection of an even bigger move away from high-cost to low-cost funds,” a recent Bloomberg article suggests that active managers might want to consider offering their services as part of a complementary role to boost overall portfolio returns. Several arguments are offered, including: “It lets active managers be truly active.” If benchmark returns are coming from the passive portion of a portfolio, this allows the active manager to be “truly active and make high-conviction bets.” Such a dynamic increases investors’ ability to better tolerate underperformance on the active side. […]